Tax cut for high income earners to go ahead, but business braces for tax grab

Prime Minister Kevin Rudd says the Government will not abandon its planned tax cuts for high income earners, despite a looming budget deficit of up to $70 billion.

The Government had promised to cut the tax rate for individuals earning between $80,000 and $180,000 from 40% o 38% from 30 June.

But Treasurer Wayne Swan raised fears that high income earners would be slugged when he said last week that “longer term, you have to look at what can be afforded by way of additional support from those who are better off”.

Rudd says the Government will keep its promise.

“We take our commitments on something as fundamental as that pretty seriously,” Rudd told reporters yesterday.

“We believe not only in the integrity of the commitment that we have put to the Australian people, but also in terms of where we are in the economy cycle …we remain therefore committed to those tax commitments.”

But business groups are now worried about where the Government’s belt tightening might be concentrated, and are concerned that the $67.4 billion in tax concessions the Government provides each year may be under attack. There are fears tax breaks on superannuation, investment and fuel could be targeted. 

The superannuation sector – which benefits from $24.6 billion of tax concessions each year – is particularly worried that it will become a budget target.

The Financial Planning Association is concerned about changes to transition to retirement rules, which currently offer great tax benefits to mature-age workers and changes to the tax-free status of super withdrawals after age 60.

The Association of Superannuation Funds of Australia is concerned that Government might increase the 15% tax on super contributions for high income earners.

The chief executive of the ASFA, Pauline Vamos, told The Adelaide Advertiser any tinkering with super would be short-sighted.

“We need to encourage people to work longer. We have to look at the medium to long term, and we can’t use super – which is about people’s retirement – to address an immediate budget deficit issue.”

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